BUDGENS HAS an image problem. The City thinks its dull and too small to be worth taking an interest in. Admittedly, it doesn't have the likes of Punch Taverns' Hugh Osmond at its helm and you won't see its German chief executive, John von Spreckelsen, launching any pounds 3bn bids in the retail sector this year. But there are some similarities between the two.

Budgens has taken the courageous step of investing in a sector notorious for being merciless with its returns. The pounds 115m company has spent more than pounds 50m in the past couple of years to beef up its store portfolio. Last year it opened 14 Budgens supermarkets and two b2 convenience stores, acquiring a further four.

Is Budgens' investment misplaced? The group is growing slowly but surely. Last year like-for-like sales grew almost 3 per cent, and they are growing even more in the current year. Customer perceptions of value and staff friendliness are improving. The key to its success is its distribution system, in which it invested another pounds 4m last year. It can deliver to each of its stores three times a day. A dull fact, perhaps, but it took market leader Tesco over two years to develop a distribution network it was satisfied with. This year there will be another 15 Budgens refits and eight new stores. It also invested a further pounds 4m in distribution.

The shares fell from 81p to 56p last year after Budgens walked away from talks with Booker. Now it is tipped as a target for takeover by the likes of Sainsbury's. Analysts expect pre-tax profits of pounds 13.5m and earnings of 5p per share this year, putting the shares, at 66.25p, on a p/e of 13. Earnings growth will not be stunning, but Budgens, if it stays independent, should deliver stable long-term growth.